Predatory pricing can be defined as below-reasonable pricing aimed at eliminating competitors in the short term and reducing competition in the long term.
This is a practice that is detrimental to both competitors and competition. Price cuts are usually aimed only at increasing market share, while predatory pricing is aimed at eliminating competition and creating a monopoly. It is a strategy that allows strong and well-funded companies to secure their products and services at the lowest prices and prevent competitors from competing. And when everyone else encounters huge losses and goes out of business, Goliath withdraws the giveaway and makes hay by scaring consumers.
Key features of predatory pricing
Predatory pricing is a market-specific strategy that only a few players can adopt.
In a highly competitive market, gaining market power by artificial means is a de facto myth. Mergers are generally the recommended means of gaining a dominant position in a concentrated market, but in most cases, this is reasonable simply because competitors are least likely to agree to the merger. Not. Therefore, while predatory pricing is illegal and preferred over mergers, further detection of predatory pricing is a complex issue.
Barriers to Entry:
Even concentrated markets are characterised by barriers to entry. In the absence of barriers to entry, the threat of entry or the impact of frequent entry acts as an impediment to the introduction of predatory pricing.
Decentralised markets are highly competitive and unaffected by anti-competitive practices.
Absorption of competing sales is the intended goal of predatory pricing policies. As prices fall, predator's product demand increases and competitors' product demand decreases. Without excess capacity, Predator will not be able to absorb sales from its intended competitors. Without additional production, there is no pressure on competitors and their survival.
Only well-funded companies can succeed at competitive prices.
"Next, financial reserves are those that have a large market share and have relative efficiency and competitive costs, or other advantages over their rivals, or activities in an independent relative market. It may be owned in another market that is working well ... "The first stage of the predatory scheme, that is, the predatory company suffers losses for a considerable period of time, artificially low It becomes clear that the predatory scheme's financial resources must be greater than those of its rivals, as, in the case of selling at a price, the latter may not be able to absorb losses such as robbery
Short term Without loss compensation, predatory prices would be a pointless operation.
There are differences between jurisdictions in terms of understanding and proof of repayment. Compensation in this sense is not limited to short-term recovery of financial losses but includes gaining reputation and market power. Compensation is usually inferred or assumed from the presence of other characteristics. Structural research is a valuable tool for identifying markets that are likely to be vulnerable to recovery.
In fact, only one dominant unit can have the mentioned characteristics. Domination is a multifaceted issue, and if a non-dominant company is in a healthy financial position, it is perfectly possible to engage in predatory pricing.
Under the 2002 Competition Law, "predatory price" means a product at a price lower than the cost of manufacturing the product or providing a service to produce the product, reducing its competitiveness, or eliminating competitors¹.
Means to sell or provide a service. Control is a prerequisite for maintaining the right to predatory pricing under our law, as the law declares predatory pricing as a means of abusing the dominant position. However, this law has not yet been notified. Currently, the 1969 Monopoly and Restrictive Trade Practices Act (MRTP Act) has predatory pricing. A law that regulates competition in India, which provides for restrictive business practices under 2(o) and 33(J). Under the MRTP Act, domination is not a requirement for predatory pricing, but the behaviour and intent of predatory companies are essential and must be demonstrated with clear and compelling evidence².
In Re: Johnson And Johnson Ltd.3 said that “The essence of predatory pricing is pricing below one’s cost to eliminate a rival.”
A high-level committee called the Ragavan Commission was established to prepare a report that took into account the issues surrounding the abuse of dominant positions.
Predatory pricing is one such issue, and the issue of consumer impact has been addressed8. The Commission is Haridas Export v. All Indian floating glass manufacturers. In this case, the court ruled that if the product was sold at a price below the average cost, this should not always be restricted. This finding was related to the condition that price cuts should not undermine the ongoing competition in the market. This is the consumer. A report submitted by the Commission stated that price cuts should only be done to thwart competition and keep other competitors out, and then it should be restricted. However, you should not limit companies that have a high market share due to their high efficiency and low prices. Therefore, it is necessary to carefully distinguish between intentional attempts to harm competition and harm from increasing the efficiency of the dominant player.
The role of competitors
When a single company enters the market almost instantly, it is most often due to abuse of dominant positions and consequent predatory pricing.
These two principles are seen as a bridge between legal and economic boundaries and overlap with existing market participants. Such activities have proven to be illegal, but they are just one of the most common ways this company or group can abuse its dominant position. Predatory pricing relies primarily on the use/abuse of dominant positions.
As per Section 4(2) of the Competition Act, 2002 dominant position has been described as: “dominant position” means a position of strength, enjoyed by an enterprise, in the relevant market, in India, which enables it to— (i) operate independently of competitive forces prevailing in the relevant market; or (ii) affect its competitors or consumers or the relevant market in its favour.
For an entity to attain a dominant position, it is important that the entity has control and has the influence to affect the relevant sector of the market to the tune of more than 50 per cent, provided that the other rival players hold a much less share in the active market.
To ensure healthy competition in the market amongst the players the Competition Act, 2002, has been introduced in replacement of the Monopolies and Restrictive Trade Practices Act, 1969, which seeks to ensure the welfare of the consumers. The provision is read as below:
Section 4(2) (a) of the Competition Act, 2002 states that: There shall be an abuse of dominant position under Sub-section (1), if an enterprise or a group,(a) directly or indirectly, imposes unfair or discriminatory(i) condition in purchase or sale of goods or service; or (ii) price in purchase or sale (including predatory price) of goods or service.
Explanation- For the purposes of this clause, the unfair or discriminatory condition in purchase or sale of goods or service referred to in sub-clause (i) and unfair or discriminatory price in purchase or sale of goods (including predatory price) or service referred to in sub-clause (ii) shall not include such discriminatory condition or price which may be adapted to meet the competition.
As per explanation (b) at the end of Section 4 predatory pricing refers to a practice of driving rivals out of business by selling at a price below the cost of production.11 Which read as follows: “predatory price” means the sale of goods or provision of services, at a. price which is below the cost, as may be determined by regulations, of production of the goods or provision of services, with a view to reduce competition or eliminate the competitors.”
However, in 2007, Section 4 of the Competition Act, 2002 was amended by the Competition (Amendment) Act, 2007. The objects and reasons for such amendment were given in the Notes on clauses of the Competition (Amendment) Bill, 2007 which says that: This clause seeks to amend Section 4 of the Competition Act, 2002 relating to abuse of dominant position.
The existing provisions of Section 4 apply only to an enterprise and not to the group of enterprises. Clause (c) Sub-section (2) of Section 4 states that there shall be an abuse of dominant position if an enterprise indulges in practice or practices resulting in a denial of market access.
The most valuable observations on predatory pricing and abuse of dominant positions are Lord Denning, M.R. Restricted Trade Agreement Registrar v. W.H Smith & Son Ltd.16, in interpreting the UK's Restrictive Trading Practices Act of 1965, had a time when dealers could unite to maintain trading and set prices accordingly for monopoly. I interpreted it as there was. This will also keep out new entrants who may lower prices or produce and sell higher quality products.
Therefore, Congress had to intervene for the benefit of both new entrants and consumers and invalidate these business practices unless in the public interest. Therefore, the law invalidated such agreements and required traders to register all trading practices. However, Sir Denning states that the participating traders did not notify the law and took place in the dark. Even if the law and consumers don't know about it. No written agreement or language was required. "A wink or nod was enough" to combine and monopolise the entire market and manage everything in the market. Therefore, Parliament passed another law to abolish these practices, which included not only an agreement but also an agreement to control predatory prices.
Reliance JIO Case
Telecom in India has experienced turmoil over the past three years caused by new entrants to the telecom market called "Jio," a product of the Reliance Group of Industries conglomerate.
Initially launched as an offer, the service of this offer (that is, unlimited lifetime calls and unlimited data benefits) was made publicly available, driving the mass flow and surge to the proposed benefits. Insist on something. As expected, this move not only stimulated many customers but also instilled a sense of fierce competition among rivals. This further led to multiple price cuts for services from all other major service providers, and subsequently described this surge in competition as deliberate sabotage. The accusation cannot be dismissed as a bad cry, but the consumer market welcomes new entrants and open-handed competition, making it even more difficult for others to establish a competitive foundation. increase.
Despite being repeatedly denied by the Reliance Industries Group for "crowd prices" and its position as the dominant player in the market, the conglomerate certainly affects India's telecommunications sector and key players, left, right and centre. Is giving.
Competition law no longer has an obligation to protect consumers and competitors from the negative effects of predatory pricing. India's competition law and regulators under that law seem too serious about the current old sayings.There is a sense that in order to enter a truly fair and free market, we need intelligent laws to devalue predatory prices. However, while the editorial board has done a satisfactory job in banning predatory pricing, it has failed to provide the long-awaited comprehensive definition of predatory pricing.
This article is written by Faiz khan of Campus law centre Delhi University.